The German Takeover Act limits the bidder's freedom to make the offer conditional which would otherwise be possible under general contract law. The act expressly prohibits public offers in which the bidder reserves the right to rescind or revoke the offer. Such offers are unlawful (Section 18(2) of the act) and will be prohibited by the German Federal Financial Supervisory Authority (Section 15(1)(2)). A bidder thus cannot withdraw a takeover bid.
According to Section 18(1) of the Takeover Act, a bid may not be made conditional upon events which can be brought about exclusively by:
- the bidder;
- persons acting in concert with the bidder or their subsidiary undertakings; or
- an adviser acting on behalf of any such person or undertaking.
This means that the act prohibits public offers with subjective conditions. The act does not specify types of conditions individually. It may therefore occasionally be difficult to distinguish between prohibited subjective and lawful objective conditions.
The following conditions are regarded as admissible:
- minimum acceptance level;
- approval by governmental and/or cartel authorities;
- approval of the bidder's shareholders meeting; and
- no competing offer.
Some legal commentators argue that no defence measures by the target can also be a lawful condition. The same holds true with regard to force majeure or material adverse change clauses, provided that it is not left to the bidder's discretion to determine whether the conditions have been fulfilled. This is a fine line to draw. Even apparently objective conditions may not entirely be outside the sphere of the bidder's influence. A bidder could try to prevent the fulfilment of conditions by certain actions or omissions - for example in its dealings with public authorities. It is one of the tasks of the Federal Financial Supervisory Authority to intervene in the event of objective condition abuse.
While the condition that financing is obtained from a third party could be regarded as objective, it is not permissible. On the contrary, Section 13 of the Takeover Act expressly provides that the bidder must secure financing prior to the bid's publication. If cash consideration is offered, the bidder must even obtain written confirmation from an independent financial services provider that the bidder has taken all necessary measures to ensure the funds are available when the payment claim of the accepting shareholder becomes due and payable. If this confirmation turns out to be incorrect, the financial services provider is liable to the accepting shareholder (Section 13(2)).
Pursuant to Section 21(1)(4) of the act, the bidder may waive conditions up until one working day prior to the acceptance period. Where a condition is waived, the acceptance period is extended by two weeks.
A mandatory bid pursuant to Section 35 and following of the Takeover Act, triggered by gaining direct or indirect control over the target (at least 30% of the voting rights), may not be made conditional. An exception applies to legal conditions such as government or cartel authority approval.
Since the enactment of the Takeover Act on January 1 2002 the most common types of conditions have been a minimum acceptance level and antitrust clearance. As explained, this type of condition is clearly lawful. Where doubt exists, a bidder should consult and reach agreement with the Federal Financial Supervisory Authority prior to launching a bid.
The Takeover Act contains no provisions on how to ascertain whether a condition has been met. Moreover, the act does not provide for any legal means of enforcing fulfilment of the bid by any of the parties involved. This means that both the bidder and the addressee who accepted the offer would have to sue each other for specific performance before the competent civil courts. It would then be for the courts to decide whether a specific condition had been fulfilled.
For further information please contact Oleg de Lousanoff at Hengeler Mueller by telephone (+49 69 17 09 50) or by fax (+49 69 72 57 73) or by email ([email protected]). The Hengeler Mueller website can be accessed at www.hengeler.com.